Stolen Property Recovered After Bankruptcy Is Filed: Who Keeps It?

Prior to his filing Chapter 7 bankruptcy one of my clients was victim of a home break-in and theft. Valuable personal property was stolen. A police report was filed. After filing the petition, the police recovered some property and the thief was ordered to pay restitution to my bankruptcy client.

The client asked me whether the gets to keep the property recovered and the money received as part of the restitution. On one hand, the debtor’s bankruptcy property consist of asset owned on the date of the filing, and money obtained post filing are not included in the bankruptcy estate. The debtor did not list a claim against the unknown thief because he had no expectation that his property would be recovered or that he would receive restitution.

On the other hand, the debtor did technically have a claim to the lost property on the date he filed. The recovery satisfied the claim that existed on filing date. In that sense, the property and restitution should be listed on amended schedules.

I am not sure what the answer is. I am also not clear what is an attorney’s obligation if the client decides to take the position that the property was acquired after filing and not amend schedules. Is the client then taking an aggressive but defensible position, or is the client hiding assets of the estate?

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